Question 1: (10 marks) (B1, C3)

In 2017, Ahmad & Sons, a small environmental-testing firm, performed 12,200 radon tests for $290 each and 16,400 lead tests for $240 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 10% next year. However, awareness of radon-related health hazards is expected to result in a 6% increase in radon-test volume each year in the near future. Jim Rouse feels that if he lowers his price for lead testing to $230 per test, he will have to face only a 7% decline in lead-test sales in 2018.

Instructions:

1. Prepare a 2018 sales budget for Ahmad & Sons assuming that Rouse holds prices at 2017 levels.

2. Prepare a 2018 sales budget for Ahmad & Sons assuming that Rouse lowers the price of a lead test to $230. Should Rouse lower the price of a lead test in 2018 if the companys goal is to maximize sales revenue